ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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1/RR
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1/MPS
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MV=PQ=GDP
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Excess=Actual-Required
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Detailed explanation-1: -…the monetarist theory is the equation of exchange, which is expressed as MV = PQ. Here M is the supply of money, and V is the velocity of turnover of money (i.e., the number of times per year that the average dollar in the money supply is spent for goods…
Detailed explanation-2: -The Equation of Exchange addresses the relationship between money and price level, and between money and nominal GDP. Y = real output, or real GDP. The equation tells us that total spending (M x V) is equal to total sales revenue (P x Y). Since (P x Y) is equal to the nominal GDP, then M x V = nominal GDP.
Detailed explanation-3: -The equation of exchange can be written MV = PY. When M, V, P, and Y are changing, then %M + %V = %P + %Y, where means “change in.”
Detailed explanation-4: -Thus PQ is the level of nominal expenditures. This equation is a rearrangement of the definition of velocity: V = PQ / M.
Detailed explanation-5: -Understanding Monetarist Theory Monetarist theory is governed by a simple formula: MV = PQ, where M is the money supply, V is the velocity (number of times per year the average dollar is spent), P is the price of goods and services and Q is the quantity of goods and services.